COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
London, WC2A 2LL
B e f o r e :
LORD JUSTICE CHADWICK
LORD JUSTICE SEDLEY
| The Littlewoods Organisation Plc
Commissioners of Customs and Excise
Lex Services Plc
Commissioners of Customs and Excise
Commissioners of Customs and Excise
Kuwait Petroleum (GB) Ltd
Commissioners of Customs and Excise
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
David Milne QC & Penny Hamilton (instructed by Landwells for the Littlewoods Organisation).
Nigel Pleming QC (instructed by Solicitors to the Comissioners for Customs & Excise).
Kevin Prosser QC (instructed by KLegal for Lex Services).
Rupert Anderson (instructed by Solicitors to the Commissioners for Customs and Excise)
Philippa Whipple (instructed by Solicitors to the Commissioners for Customs and Excise)
James Henderson (instructed by Roodyn Manski for Bugeja).
John Walters QC and Michael Thomas (instructed by Wallace and Partners for Kuwait Petroleum (GB) Ltd).
Philippa Whipple (instructed by Solicitors to the Commissioners for Customs and Excise).
Crown Copyright ©
LORD JUSTICE CHADWICK : This is the judgment of the Court.
The legislative provisions
"The following shall be subject to the value added tax:
(a) The supply of goods and the provision of services throughout the territory of the country by a taxable person against payment; . . ."
Article 8 was in these terms (so far as material):
"The basis of assessment shall be:
(a) in the case of a supply of goods and the provision of services, everything that makes up the consideration for the supply of the goods or the provision of the services including all expenses and taxes except the value added tax itself; . . . "
Annex A provided, at paragraph 13, that:
"The expression 'consideration' means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance, etc.) that is to say not only the cash amounts and charges but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received."
"The following shall be subject to value added tax:
1. the supply of goods and services effected for consideration within the territory by a taxable person acting as such; . . ."
In that context "supply of goods" means, or includes, the transfer of the right to dispose of tangible property as owner – see article 5(1). Tax is chargeable on the occurrence of a chargeable event – see article 10(1). For present purposes it is sufficient to note that a chargeable event occurs when the goods are delivered – see article 10(2). Article 11A defines the taxable amount in relation to supplies within the territory – that is to say, the amount on which value added tax is payable at the rate applicable to transactions of the relevant kind. The article is in these terms, so far as material:
"(1) The taxable amount shall be:
(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;
. . .
(c) in respect of supplies referred to in Article 6(3), the open market value of the services supplied.
'Open market value' of services shall mean the amount which a customer at the marketing stage at which the supply takes place would have to pay a supplier at arm's length within the territory or the country at the time of the supply under the conditions of fair competition to obtain the services in question.
(2) The taxable amount shall include:
(a) taxes, duties, levies and charges, excluding the value added tax itself;
(b) incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer. . . .
(3) The taxable amount shall not include:
(a) price reductions for early payment;
(b) price discounts and rebates allowed to the customer and accounted for at the time of supply; . . ."
"(1) Value added tax shall be charged, in accordance with the provisions of this Act -
(a) on the supply of goods or services in the United Kingdom (including anything treated as such supply), . .
and references in this Act to VAT are references to value added tax.
(2) VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply."
Section 2(1) of the Act provides that VAT shall be charged at the rate of 17.5 per cent (or at such other rate as may be in force from time to time) on the supply of goods or services "by reference to the value of the supply as determined under this Act".
"(1) For the purposes of this Act the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6 and for those purposes subsections (2) to (4) below have effect subject to that Schedule.
(2) If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration.
(3) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.
(4) Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.
(5) For the purposes of this Act the open market value of a supply of goods or services shall be taken to be the amount that would be taken as its value under subsection (2) above if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration."
Section 19(5) may be read in conjunction with schedule 6 of the Act, which contains provisions which enable the Commissioners of Customs and Excise to direct that the value of a supply shall be taken to be its open market value where the person making the supply and the person to whom it is made are connected. The importance of the provision, in the context of the present appeals, is that it recognises that "open market value" is the exception to the general rule. The general rule is that the value of the supply is specific to the particular transaction which gives rise to the charge to tax. The value of the supply effected by that transaction is equal to the monetary consideration actually paid for the supply; or, where the supply is for a consideration not consisting or not wholly consisting of money, the monetary equivalent of the consideration – see section 19(2) and (3) of the Act.
The principles established by the Court of Justice
"[Value added tax] is in the nature of a tax on consumption which means that it is the actual outlay of the consumer which must be taxed and that it is only where no price has been paid by the consumer that there is cause to adopt the criterion of normal value."
The Commission's view, expressed at page 343, was that:
". . . there can be no question of a service subject to value added tax because the service in question was not provided against payment within the meaning of Article 2 of the Second Directive but free of charge as the co-operative association did not stipulate or receive anything in return for the services which it provided . . ."
"The crux . . . is that there is nothing here that can be described as a 'payment' within the meaning of Article 2(a) of the Directive, nothing that can be described as 'consideration' within the meaning of Article 8 – consideration for the service provided for the members of the association – and nothing that can be described as 'received' by the association within the meaning of paragraph 13 of Annex A. Certainly the reduction in the value of their shares suffered by the members cannot be so described. One cannot in my opinion escape from the fact that there is no payment by the members and no receipt by the association. To cover such a case as this one would need a specific provision deeming there to be consideration where there is not."
"So a provision of services is taxable, within the meaning of the Second Directive, when the service is provided against payment and the basis of assessment for such a service is everything which makes up the consideration for the service; there must therefore be a direct link between the service provided and the consideration received which does not occur in a case where the consideration consists of an unascertained reduction in the value of the shares possessed by members of the co-operative and such a loss of value may not be regarded as a payment received by the co-operative providing the services." [emphasis added]
But the Court went on, at paragraph 13, to say this:
"What is more it follows from the use of the expression 'against payment' and 'everything received in return' first that the consideration for the provision of a service must be capable of being expressed in money, which is further confirmed by Article 9 of the Second Directive which stipulates that 'the standard rate of value added tax shall be fixed . . . at a percentage of the basis of assessment', that is to say at a certain proportion of that which constitutes the consideration for the provision of services, which implies that such consideration is capable of being expressed in an amount assessed in money; secondly that such consideration is a subjective value since the basis of assessment for the provision of services is the consideration actually received and not a value assessed according to objective criteria." [emphasis added]
"33. NYC has an interest in the holding of the party because, since that method (it would appear) is its sole method of selling, the regular disposal of its products depends on the holding of numerous parties and, therefore, on the action taken by the consultants to organise them.
34 It is for that reason, and, without doubt, for that reason alone, that NYC agrees to supply the pot of cream intended as a gift at such a low price. If the only interest at stake were that of the beauty consultant, it would be logical for the wholesaler to charge her the normal price for the product, so that she would bear the total cost of the free gift (possibly with a discount) which would have to be recovered from the profit represented by the difference between the wholesale and retail prices.
35. As is apparent from the documents before the court, if the beauty consultant does not provide the agreed service to the wholesaler, that is to say if she fails to find a housewife to organise the party for her, the pot of cream has to be returned or paid for at its normal wholesale price, a fact which provides the required support for the statement that the consideration is not, therefore, merely the £1.50."
"68 But, as I observed in my opinion in Direct Cosmetics Ltd and Laughtons Photographs Ltd v Customs and Excise Comrs Joined Cases 138/86 and 139/86  STC 540 at 549, the normal value will only have to be taken into account where no price has been paid by the purchaser and where it is impossible (or at least, excessively difficult) to attribute to the consideration, by some other means, its true value for the purposes of the transaction [emphasis added], or, at least, its real market value. At this point it must be stated that the expression used in the United Kingdom legislation and in the English version of the Sixth Directive, 'open market value', which we could assimilate to 'ordinary market value', seems to me more felicitous than the expression 'normal value' used in the Romance-language versions of the directive. It is only where there is no market that it is necessary to have recourse to a value other than the real value, or to a deemed value.
69. In any event, being a tax on consumption VAT must be levied as precisely as possible on the actual amount spent by the consumer and, accordingly, reference to open market values rather than to real values should be permitted only (otherwise than in cases where such an approach is expressly provided for) where it is impossible to follow some other procedure which comes closer to a determination of what the court has called the 'subjective value' of the consideration."
"Where that value is not a sum of money agreed between the parties, it must, in order to be subjective, be the value which the recipient of the services constituting the consideration for the supply of goods attributes to the services which he is seeking to obtain and must correspond to the amount which he is prepared to spend for that purpose. Where, as here, the supply of goods is involved, that value can only be the price which the supplier has paid for the article which he is supplying without extra charge in consideration for the services in question."
The decisions of this Court
"The question is which of those two values should be taken. The supplier contends that the only value which can be taken is the cash sum the supplier was prepared to pay, namely £2.89. I do not agree. That is not the value the parties put on the services in the events which happened, namely the choice by the hostess of a discount off the price of the blouse she wanted rather than the payment of a cash commission. To take as a measure of value of the services the amount attributed to an alternative which was not chosen would not only fail properly to apply the principle expressed in Naturally Yours Cosmetics but would provide too ready a means for the artificial reduction of the value of the consideration."
Sir Richard Scott, Vice-Chancellor, reached the same conclusion, at  STC 811, 817g-h:
"The value to Rosgill of the non-monetary consideration has to be assessed in the light of the events that actually happened; first, there were sales of £66.98; second, the hostess made the decision to purchase the blouse at a reduced price rather than to take the cash commission of £2.89. In these combined events Rosgill attributed a value of £7.23 to the hostess's non-monetary consideration. It is not to the point that if the hostess had decided to accept the cash consideration of £2.89 that sum would have been the measure of the value placed by Rosgill on the non-monetary consideration."
Lord Justice Hobhouse took the same view. He emphasised that the value of what he described as the 'barter' element in the supply of the blouse – that is to say, the non-monetary element of the consideration received by the supplier – "is that which the parties put on it, attributed to it, in the actual transaction between them." The relevant enquiry "is not a valuation exercise but simply the giving of an answer to a factual question . . ." – see at  STC 811, 819a.
"The difference between Naturally Yours Cosmetics and Empire Stores is that in the former the pot of cream had a wholesale value which the beauty consultant was required to pay if, instead of giving it to the hostess, she kept it for herself but in the latter the gifts were not included in the catalogue (see para 3 of the Advocate General (Van Gerven)'s opinion ( STC 879 at 885,  ECR 6365 at 6374). Thus in the latter case there was no value attributed by the parties to the service in question. In such circumstances the only available monetary value was the cost to the provider.
In this case the parties have attributed a value to the consideration for the services, namely the commission or the discount. In those circumstances it seems to me that the cost of the blouse to the supplier is immaterial. The services were part of the consideration for the blouse and the parties attributed values to those services."
As he went on to point out, the relevant question, in the Rosgill case, was which of the two values attributed by the parties – cash commission or discount on own purchases – should be taken as the value of the non-monetary consideration in the context of the actual transaction between them.
"(1) Where the consideration is not money, it must be capable of being expressed in monetary terms, and there must be a direct link between the relevant supply and that which is alleged to have been the consideration for it. (2) The value of the non-monetary element must be assessed on a subjective rather than on an objective basis. (3) Where the parties have expressly or implicitly attributed a value to that element in money terms that determines its value. (4) Where, however, the parties have not done this, the value can only be the price which the supplier has paid for the articles which he is supplying free of charge in return for the services in question."
He identified what he described as 'the crucial difference' between those two cases in terms which follow closely the analysis which had attracted Lord Justice Hobhouse and Lord Justice Morritt in the Rosgill case. At  STC 431, 436f-g, he said this:
"Thus the crucial difference between Empire Stores and Naturally Yours Cosmetics was that in the former the goods bore no price (see in this connection the contrast between catalogue and non-catalogue goods in the question referred to the Court of Justice in the Advocate General's opinion in Empire Stores  STC 623 at 626,  ECR I-2329 at 2332-2333 para 4)."
He accepted that at the time when the driver provided the service – by bringing his coach to the service station – neither the driver nor the service station operator would know the menu price of the meal which the driver would choose. But he rejected the submission that that made it impossible to hold that the parties had attributed any value to the driver's service. He went on, at page 437c:
"If regard is had to the particular transaction, the menu price of the meal chosen by that driver is plainly, it seems to me, the value attributed by both parties to that driver's service. It matters not that the choice of a differently priced meal by another driver may result in the attribution of a different value in his case to the same service."
It followed that the application of the principles derived from the Naturally Yours and the Empire Stores cases led to the conclusion that the monetary equivalent of the non-monetary consideration received by the service station operator, as the supplier of the meal, was to be taken as the menu price.
The "coupons" cases
"That viewpoint cannot be accepted. It is clear from the coupon's legal and economic characteristics described above that, although a 'nominal value' is indicated on it, the coupon is not obtained by the purchaser for consideration and is nothing other than a document incorporating the obligation assumed by Boots to allow the bearer of the coupon, in exchange for it, a reduction at the time of purchase of redemption goods. Therefore, the 'nominal value' expresses only the amount of the reduction promised."
"The question focuses on the role played by the voucher as consideration for the purchase of goods sold by Argos. Assuming that the voucher is something which, in part, at least, 'constitutes the consideration' for supplies of goods, the tribunal raises the central issue in dispute, namely whether it represents its full face value or only the discounted value obtained by Argos for its sale to a third party."
The Advocate General pointed out, at paragraph 16 of his opinion ( STC 1359, 1364f-g,  QB 499, 519) that the voucher played a part in two transactions. First, it was the subject of an earlier independent sale by Argos to a third party; secondly it was, itself, used to represent in part (or in whole) the purchase price for the goods supplied to the retail purchaser. On the basis that the voucher itself – and not the monetary amount paid for the voucher in the earlier transaction - constituted the consideration for the supply of the goods, the Advocate General reached the conclusion that the third question fell to be answered in sense (a) – that is to say, the part of the consideration represented by the voucher was the face value of the voucher. He took the view – distinguishing the Naturally Yours case in this respect – that there was no direct link between the sale of the vouchers at a discount and the subsequent supply of goods to the retail purchaser. "The sales of vouchers and of goods take place independently." – see paragraph 18 of the Advocate General's opinion, ( STC 1359, 1365f,  QB 499, 520G). He went on, at paragraphs 19 to 21 ( STC 1359, 1365g-1366d,  QB 499, 520G-521F):
"19. The earlier discount does not affect or enter in any way into the transaction for the sale of goods. The prices are listed in catalogues, from which goods can be selected by customers. Each customer fills in a 'customer selection form' indicating the goods chosen, by a reference number, and the quantity required. A sales assistant, depending on the particular store, either completes the form or enters the details directly into a sales register. Although, it is, in principle, possible to ascertain the discount on the original sales price of the voucher, that is not done in practice. The tribunal has found that the buyer only rarely has any knowledge of that discount. Clearly it would serve no purpose. The voucher is assigned its full face value. In payment for the goods purchased, it is as good as cash. If the vouchers then clearly constitute consideration received from the buyer of the goods and not from any third party, their value can, in my view, only be their face value and not their earlier discounted price in a transaction with a third party.
20. At this point, I am in a position to comment on what seems to me to be misplaced emphasis by Argos on certain case law of the court. In Aardappelenbewaarplaats  ECR 445, 454, para. 13, the court held that the value of the consideration actually received is "subjective" and is not a value assessed according to objective criteria. Referring to paragraph 26 of the opinion of Mr Advocate General Cruz Vilaça in Naturally Yours  ECR 6365, 6377, Argos submits that the value of the consideration depends on the facts of the individual contracts entered into rather than the state of mind of the customer.
21. It is acknowledged in the observations submitted in this case that, in this context, the word 'subjective' is not used here in its normal sense, but rather to describe the value placed by the parties on key elements in a transaction – a meaning which is equally capable of being described as 'objective'. The effect of these cases is to distinguish and exclude, for the purposes of the consideration for a sale, any supposed independent valuation, different from that adopted by the parties (for example, the special provision for 'open market value' in article 11(A)(1)(d) in respect of services referred to in article 6(3). This issue is also decisively resolved by Naturally Yours, at p. 6390, para.17:
'the parties to the contract [had] reduced the wholesale price of the pot of cream by a specific amount . . . In those circumstances, it [was] possible to ascertain the monetary value which the two parties to the contract attributed to [the] service; . . .'
That reasoning applies equally to the valuation of the voucher in the present case. It represents consideration for the agreed, 'subjective' price of the goods to the full extent of its face value. In the sense thus intended, I agree with the United Kingdom that the attribution of face value to the vouchers is consistent with decisions such as Naturally Yours."
"15. It should be noted that the transaction at issue in this question is the transaction whereby Argos goods are bought in one of its shops, the price being paid by the buyer, in whole or in part, by means of a voucher. The transaction at issue is not the previous sale of vouchers by Argos.
16. According to the court's settled case law, the taxable amount for the supply of goods and services is represented by the consideration actually received for them. That consideration is thus the subjective value, that is to say, the value actually received, in each specific case, and not a value estimated according to objective criteria: see Staatssecretaris van Financien v Coöperatieve Aardappelenbewaarplaats GA (Case 154/80)  ECR 445; Naturally Yours Cosmetics Ltd v Customs and Excise Commissioners (Case 230/87)  ECR 6363; Boots Co plc v Customs and Excise Commissioners (Case C-126/88)  ECR I-1235, and H.J. Glawe Spiel- und Unterhaltungsgeräte Aufstellungsgesellshaft m.b.H & Co KG v Finanzamt Hamburg-Barmbek-Uhlenhorst (case C-38/93)  ECR I-1679.
17. According to the same case law, that consideration, when not consisting of money, must be capable of being expressed in money; Coöperatieve Aardappelenbewaarplaats and Naturally Yours Cosmetics.
18. In this case the subjective consideration actually received by Argos for the sale of its goods is constituted wholly or in part by the vouchers presented by the buyer of the goods. Since Argos regards the voucher as representing such part of the catalogue price as is equal to its face value, the only question is as to the actual money equivalent of the voucher taken in payment by Argos.
19. According to the terms of the transaction which involves the initial purchase of the voucher, that voucher, by its nature, is no more than a document evidencing the obligation assumed by Argos to accept the voucher, instead of money, at its face value: see, to that effect, Boots  ECR I-1235, 1267, para. 21.
20. In order to ascertain the actual money equivalent accruing to Argos when it takes a voucher in payment, regard must be had only to the transaction which is relevant in that regard, namely the initial transaction comprising the sale of the voucher, at a discount or otherwise. In view of the nature of that transaction, the actual money equivalent which the voucher represents for Argos, when the latter accepts it in payment, is the sum of money which it received on the sale of the voucher, namely its face value less any discount allowed.
21. The fact that a buyer of Argos goods does not know the real money equivalent of the voucher used by him is irrelevant: the important issue in this case is to determine the actual money equivalent received by Argos when it accepts vouchers in payment of its goods, since only that actual equivalent can constitute the taxable amount.
22. This interpretation is not invalidated by the fact that, in each transaction, the details of what Argos receives as consideration for the supply of goods are unknown. In that connection, it must be emphasised that in this case the burden of proof falls on the supplier. Argos claims, without having been contradicted, that as a result of the serial number appearing on each voucher, it is possible, when the voucher is presented in a shop, to identify the initial purchaser and to determine any discount allowed to him. Thus, it is not difficult to ascertain what proportion of Argos's total receipts is represented by the vouchers received: see, to that effect, H.J. Glawe Spiel- und Unterhaltungsgeräte Aufstellungsgesellshaft m.b.H & Co KG v Finanzamt Hamburg-Barmbek-Uhlenhorst (case C-38/93)  ECR I-1679.
"19. According to the terms of . . . the initial purchase of the voucher, that voucher . . . is no more than a document evidencing the obligation assumed by Argos to accept the voucher, instead of money, at its face value . . .
20. In order to ascertain the actual monetary equivalent to Argos when it takes a voucher in payment, regard must be had only to the transaction which is relevant in that regard, namely the initial transaction comprising the sale of the voucher . . ."
Post-transaction discounts or rebates
"11C(1) In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States."
"In my view, the taxable amount of a transaction so determined cannot be reduced in accordance with art 11C(1), unless there is a similarly direct link between the alleged subsequent reduction and the relevant taxable transaction. In the present case there is no such link. In one transaction, the company supplies goods, normally to a retailer, for a specified price, which does not change, and in the other it reimburses a third party some of the price paid for purchasing some of those goods from such a (but not necessarily the same) retailer."
He reached a similar conclusion in relation to the 'money-off' scheme. He accepted that the payment made by the company to the retailer on redemption, by the retailer, of the 'money-off' coupons taken by the retailer in part payment for the supply by the retailer of goods to the consumer was to be treated as part consideration received by the retailer for the supply of goods – see at paragraph 35 of his opinion ( STC 1387, 1398h-j,  QB 499, 555G-H). But he held, at paragraph 37, that:
"It follows inexorably from the character of the refund as consideration for the retail sale that its payment does not have the effect that the price charged by the company to the retailer 'is reduced after the supply takes place' for the purpose of art 11C(1)."
"The basic principle of the VAT system is that it is intended to tax only the final consumer. Consequently the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him."
"22. It is not, in fact, the taxable persons who themselves bear the burden of VAT. The sole requirement imposed on them, when they take part in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved, is that, at each stage of the process, they collect the tax on behalf of the tax authorities and account for it to them.
. . .
24. It follows that, having regard in each case to the machinery of the VAT system, its operation and the role of the intermediaries, the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer."
"In circumstances such as those in the main proceedings, the manufacturer, who has refunded the value of the money-off coupon to the retailer or the value of the cash-back coupon to the final consumer, receives, on completion of the transaction a sum corresponding to the sale price paid by the wholesalers or retailers for his goods, less the value of those coupons. It would not therefore be in conformity with the directive for the taxable amount used to calculate the VAT chargeable to the manufacturer as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with."
Article 11C(1) of the Sixth Directive had to be interpreted so as to give effect to the principle of neutrality. At paragraph 31 of the judgment ( STC 1387, 1404a-b,  QB 499, 562A-C), the Court said this:
"It is true that that provision [article 11C(1)] refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently. The fact remains, however, that the provision is an expression of the principle, emphasised above, that the position of taxable persons must be neutral. It follows therefore from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount for VAT, of situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer, grants the final consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person."
"9. The claimant sells its goods to customers by means of mail order, using catalogues which it sends to individuals in order that they may act as agents. It has approximately 900,000 active agents, who order goods either for themselves ("agents' own purchases") or for other customers. Purchases are paid for under a self-financed credit scheme established by the claimant, the agents paying for the goods at the price set out in the catalogue ("the catalogue price") in instalments, generally spread over a period of 50 weeks. The claimant has created in its books a separate credit account for the agents to which a sum equal to 10% of each payment made by an agent to the claimant is credited to her automatically, that sum comprising more precisely a 10% discount in respect of the agent's own purchases (hereafter referred to as "AOP discount") or a 10% commission in respect of purchases made for other customers ("commission").
10. The agent may withdraw the amount credited to her account at any time by cheque, by post office giro or by National Lottery vouchers; she may also set off that amount against outstanding balances owed by herself or a customer, or use it against new purchases, which will entitle her to a further 10% discount. However agents are not entitled to pay, from the outset, the catalogue price less the AOP discount."
"23. If, at the time of that transfer, the customers paid a reduced price, they would receive a discount; if the seller refunded to them part of the price already paid, the customers would receive a rebate within the meaning of art 11A(3)(b); see, to that effect, Boots  ECR I-1235, 1266, para 18.
24. However, that is not the case here. At the time of that transfer, agents must pay the full catalogue price in instalments, and the claimant is required to credit a separate account with a sum equal to 10% in respect of each payment which agents make. The sums which will thus have to be credited as and when those payments are made do not yet constitute discounts within the meaning of art 11A(3)(b) of the Sixth Directive."
"Upon a proper construction of arts 11A(3)(b) and 11C(1) of the Sixth Directive, the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use where the supplier allows the customer a discount from the catalogue price, a separate account being credited in the customer's favour with the amount of that discount as and when instalment payments are paid to the supplier – a discount which may then be immediately withdrawn or used in another way by the customer – is the full catalogue price of the goods sold to the customer, reduced accordingly by the amount of that discount at the time when it is withdrawn or used in another way by the customer."
The instant appeals
COMMISSIONERS OF CUSTOMS AND EXCISE V THE LITTLEWOODS ORGANISATION PLC
"For the supply of services under the contract of agency to constitute part of the consideration for the supply of goods a direct causative and contractual link must be established. The twin issues raised in this case are (firstly) whether that direct link is established and (secondly), if it is, how the element of the supply of services is to be valued."
"The reason and only reason why the agent could and did enter into the sale contract at the price reflecting the special allowance [of an additional 2.5%] was the existence and exercise by the agent of the third option contained in the agency contract."
"The reason and only reason why the agent could and did enter into the sale contract at the price reflecting the special allowance [of an additional 2.5%] was the existence and exercise by the agent of the third option contained in the agency contract."
But it is important not to overlook (i) that entry into the agency agreement imposed no obligations upon the agent, (ii) that commission was not earned on sales, but was generated by payments, (iii) that, as between Littlewoods and the agent, it was immaterial whether those payments were made in respect of the agent's own purchases or in respect of sales to third parties, and immaterial whether those payments were made out of the agent's own monies or out of monies collected from third party purchasers, (iv) that the agent could enter into "the sale contract" – that is to say, the contract for the supply of secondary goods – "at the price reflecting the special allowance" whether or not she had provided any service in relation to sales to third parties.
"Note (1): In the event of cancellation of the sale the amount refundable by Lex will be limited to the true value shown."
The transaction recorded on the Vehicle Order form was reflected in invoices: one in respect of the Lex car to Mr King at a stated selling price of £21,302, and the other in respect of the sale of the part exchange car by Mr King to Lex at a stated price of £2,000. The latter contained a declaration, signed by both parties, that the car had been sold by Mr King at that price.
"From the point of view of Lex it was immaterial whether a customer received a discount in the price of the car he bought or received a higher price on the car taken in part exchange; the net effect was the same. Since most customers were primarily concerned with the car traded in, Lex responded by offering good trade-in prices in order to obtain the business. It was a marketing tool."
"There is no doubt that the part exchange car formed part of the consideration for the Lex car. The only question is its value. That value is the value placed on it for the purposes of the transaction whereby the customer bought a Lex car (see Naturally Yours case, above). It is clear from the sale documentation that for that purpose they valued it at the part exchange price. The part exchange price was specifically agreed and there are commercial reasons for it (Decision, paragraphs 14 and 18). In those circumstances, the court cannot substitute the value of the part exchange car to Lex, i.e. its trade value. This in truth would not be the requisite subjective value of the part exchange car at all . . ."
"Finally, it is not open to the court to value the consideration constituted by the part exchange car as if the customer had been given a discount on the list price of a Lex car. That transaction would have had the same economic effect but the court is bound on the authorities to take the subjective value of the non-monetary consideration and that entails valuation in accordance with the transaction as it was in fact structured."
"The tribunal found the following as 'primary facts'. (1) The published terms of business are: £20 to buy and £10 to exchange. (There was in fact a notice which read: 'Videos. Sale £20: Part-Exchange £10'). (2) The videos that are on offer in Mr Bugeja's shop are all marketed with the unique Bugeja security tag. The tag cannot be removed without leaving a mark on the video. (3) Videos bought in by Mr Bugeja from 'wholesalers' as stock of the business cost £2 to £3. (4) Apart from the videos purchased by Mr Bugeja from wholesale sources and those with Bugeja security tags already affixed to them which are taken back from customers, no other videos are stocked. In particular a video which does not bear the Bugeja security tag is not accepted by Mr Bugeja from a customer. (5) Where an 'introductory supply' is made to a customer, i.e. in return for the £20 payment, that customer learns that if he brings the video back he will be able to take another on payment of £10. (6) There is no obligation on any customer to return any video taken from the shop. 70% to 80% of the videos taken by customers from the shop are brought back, mostly within a week, by customers in return for replacement supplies. (7) The right to a replacement supply does not depend on the length of time which the handed-in video has been away from the shop or on the time the replacement video is to be away. (8) No record is kept of the persons taking videos either following introductory supplies or following replacement supplies. (9) Mr Bugeja will not accept a badly damaged video in return for a replacement supply. A replacement supply is not available to a customer who has lost a the video that was previously supplied to him by Mr Bugeja."
In addition to the facts found by the tribunal, the judge was told by counsel for Mr Bugeja that:
"A large proportion of the videos were thrown away. Mr Bugeja cannot remember the exact proportion. Some of the videos were resold. Reasons why Mr Bugeja might throw away a video are: (i) the video is no longer in a useable condition; (ii) the video is out of date."
The Commissioners were content to accept that some returned videos were thrown away by Mr Bugeja; although they did not accept the reference to 'a large proportion' as necessarily correct.
"The result of this case depends on the determination of the real nature of the replacement supply. The starting point in the enquiry is the introductory supply. The customer who is party to the transaction involved in the introductory supply has to pay £20. In return for this he gets the video marked with the Bugeja security tag. He is free to keep the video and in other respects to treat it as his own property. But because he has bought a video with a Bugeja security tag attached, he or the holder for the time being of that video has the right to hand it to Mr Bugeja and obtain another such video in return for a £10 payment; and the replacement video in its turn will (unless Mr Bugeja has changed the terms of the trade in the meantime) confer the same right to obtain a further video. The contractual analysis of the introductory supply is, therefore, this. In return for the payment of the £20 the customer obtains the video marked with the Bugeja security tag together with the benefit of Mr Bugeja's undertaking to keep open and unrevoked the offer to make a replacement supply for £10. The benefit of Mr Bugeja's undertaking is transferable in the sense that it is given to the recipient of the introductory supply in the first place but it passes to any other person who has possession of the same video. Acceptance is made by handing in that video and paying £10.
The contractual basis of the replacement supply is this. The customer exercises his right of acceptance of the open offer given at the time of the introductory supply. He hands over the video and pays £10 and gets the replacement supply in return."
The tribunal went on:
"The replacement supply is for a consideration which is partly cash (£10) and partly the customer's service in handing in a Bugeja video. The value to be attributed to the replacement supply is, on Naturally Yours Cosmetics principles (page 854j), £10 plus the monetary value if any which the two parties to that supply attributed to the customer's service of handing in the Bugeja video. The Commissioners say that that value is £10. This is because the return of the old Bugeja video allows the customer to obtain a new one for £10 rather than the £20 which he would have had to have paid had he no Bugeja video to hand in. £10 must therefore (so the argument runs) have been what the parties had in mind as the consideration for the customer's service of handing in the old Bugeja video at the time of the replacement supply.
There is no doubt that the customer who enters the shop with an old Bugeja video in his hand can obtain a replacement video for £10 less than the customer who comes in empty-handed. This does not however answer the question of what monetary consideration the parties to the replacement supply transaction attributed to the customer's service of handing in his old Bugeja video. This is because the question cannot be answered by focussing on the replacement supply in isolation. The consideration for the replacement supply has to be determined in its legal context. Seen in that light, Mr Bugeja can have attributed no monetary consideration to the customer's service in handing it in. So far as he was concerned he had no choice: he had to take the old video back, assuming it was in acceptable condition, and supply a new one for £10. This followed from the fact that he had made the introductory supply and had incidentally received a consideration of £20 at that earlier stage. It was the introductory supply that secured for the customer a video coupled with Mr Bugeja's obligation, evidenced by the security tag attached, to make a replacement supply to anyone who returned the video and paid £10. The introductory supply put that customer, or the holder in due course of the Bugeja video, in the preferential position referred to above as compared with the empty-handed buyer. The terms of the replacement supply were dictated by the introductory supply. The parties had no scope to attribute any monetary consideration to it, other than the £10."
"There is, however a fundamental difference. The coupon [in the Boots case] was held to be 'nothing other' than a document incorporating an obligation. It represented a burden on the supplier, not an advantage to him. No such finding is, or could be made, on the facts of this case. The videos returned to Mr Bugeja, apart from the obligation represented by the security tag, represented something of potential value to him. As [counsel for the Commissioners] submits, to ignore the return of the old videos is to offend the terms of the Sixth Directive, which deems consideration to be 'everything which has been obtained by the supplier'. The real issue is how that element of the consideration is to be valued."
"Where the parties have expressly or implicitly attributed a value to the [non-monetary] element that determines its value."
In the present case the application of that principle would lead, necessarily in our view, to the conclusion that the monetary equivalent of the returned video was £10. We see no answer to the submission that the value attributed by the parties to the returned video in the part exchange transaction in which they were engaged was the difference (£10) between the amount of money (£20) which the customer would pay for the supply of the replacement video if he did not return a Bugeja video and the amount of money (£10) which he does pay for the supply of the same replacement video if he does return a Bugeja video.
"I have not found it easy to extract from these cases a clear or consistent line of approach to the treatment of non-monetary consideration. They reflect two characteristic features of transactions of exchange: first, that on such a transaction (unlike one for cash) there may be VAT consequences in both directions; and, secondly, that consideration consisting of goods or services (again, unlike cash) will often have different values depending on whose view point is adopted. In deciding which viewpoint is to be taken, one finds in the cases two distinct, and potentially inconsistent lines of thought: (1) the viewpoint is that of the consumer, since VAT is a tax on consumption; (2) it is that of the supplier, since the 'taxable amount' is 'everything . . . obtained by the supplier' as consideration."
After pointing out that what he perceived as "these different approaches" had led to "some ambiguity in the language of the Court of Justice", the judge went on, at page 6j, to observe that "these ambiguities are only partly resolved by the Court of Appeal cases." He drew attention to the distinction, in the Rosgill case, between the reference, in the statement of the 'settled principle' in the judgment of Sir Richard Scott, Vice Chancellor, to the 'subjective value to the supplier' and the references, in the judgments of Lord Justice Hobhouse and Lord Justice Morritt in the same case, to 'attribution by the parties'. He continued, at  STC 1, 7b-g:
"The 'settled principle' as stated by the Vice-Chancellor is, in my view, fully supported by cases such as Empire Stores, Argos and Elida Gibbs. It also reflects a sound taxation principle: that no one should be accountable for tax on more than the value to him (that is, the 'subjective value') of what he has received. Although there is an apparent difference between his formulation and that of the other members of the court, the distinction was immaterial on the facts of Rosgill, since his 'subjective value to the supplier' was the same as the 'value attributed by the parties', as found by the other members of the court. The same could have been said in Naturally Yours and Westmorland Motorway.
However, it is important to bear in mind what was being valued in each of those cases. The consideration – the 'taxable amount' – consisted of the services; but the valuation was derived from the price of the goods. This was because there was no obvious way of attributing a value to those services, other than by treating them as having a value identical to the goods supplied in return. It was therefore an 'approximation' or 'indirect' method (as the Advocate General (da Cruz Vilaça) observed in Naturally Yours  STC 879 at 892,  ECR 6365 at 6383, para 71). The figure is referred to as one 'attributed by the parties'. On analysis, however, it is the subjective value of the goods, to the recipient of those goods (the beauty consultant) since it is based on the price paid by her; it is then treated, in effect, as a proxy for the subjective value of the services to the recipient of the services (the manufacturer).
To summarise, in my view, the true criterion is the 'subjective value to the supplier' of the goods or services received as consideration. The Court of Appeal cases provide general guidance, but must be looked at with regard to their special facts. The method adopted to attribute a monetary amount to the consideration will vary according to the facts. It must, however, be 'the one which proves most direct and least distorting and which is most in conformity with the general scheme of the Sixth Directive, as interpreted by the court' (see the opinion of the Advocate General in Naturally Yours  STC 879 at 891,  ECR 6365 at 6382, para 65). Part of that scheme is the principle that no one should be accountable to tax on more than the subjective value of what he has received."
"As I have said, the facts in that case (and in the two Court of Appeal cases) were very different. In each case the consideration consisted of services which were intangible in nature and not readily capable of direct valuation by any normal method. It is understandable, therefore, that it was necessary to adopt an indirect method, by treating the value of those services as equivalent to the value of the goods for which those services were consideration. Since the value of the services to the supplier was otherwise undefined, the result did not offends the principle that the taxable amount should not exceed what the supplier had actually received.
In the present case, by contrast, there is nothing intangible about the consideration received by Mr Bugeja, nor any obvious problem of valuation. The consideration is partly in cash, and partly in the form of an object (a secondhand video), of a type which is regularly bought and sold. There is no need for any 'approximation' or 'indirect' method. We know that the 'subjective value to the recipient' is not more than £2 to £3. If one is looking for the method which is 'most direct and least distorting', and which avoids him having to pay tax on more than he receives, that value provides a ceiling. It would be surprising and unfair if he were required to pay tax as though he had received something worth £10. I conclude that this is a case where it is appropriate to adopt a method analogous to that used in Empire Stores."
"The application by a taxable person of goods forming part of his business assets for his private use or that of his staff, or the disposal thereof free of charge or more generally their application for purposes other than those of his business, where the value added tax on the goods in question or the component parts thereof was wholly or partly deductible, shall be treated as supplies made for consideration."
"It is for the national court to enquire whether, at the time of purchasing the fuel, the customers and Kuwait Petroleum had agreed – through the dealers, as the case may be – that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers or the redemption goods." . . .
The Court observed that there was nothing in the documents to suggest that there was, in fact, any such reciprocal performance by the parties concerned. But, plainly, if the redemption goods had been paid for, as part of the price paid for the fuel, then article 5(6) of the Sixth Directive could have no application: the disposal of the redemption goods would not be "free of charge".
"[I]f contrary to [the company's] first submission, Art 5(6) requires the output tax charge to be imposed based on the cost of redemption goods supplied by [the company], nevertheless the assessment appealed against falls to be discharged because [the company] is entitled to an abatement of output tax accounted for in respect of supplies of fuel, by reference to the subsequent provision of redemption goods free of charge. The provision of redemption goods free of charge operates as a reduction of the price of the fuel after the supply (of the fuel) has taken place, by an amount equal to the cost of the redemption goods, within Article 11(c)(1). It is equivalent to the reduction of the price of the manufacturer's goods by reference to the cash back coupons in Elida Gibbs."
The company accepted that this was a new point, not raised at any earlier stage in the proceedings. As the tribunal pointed out (at paragraph 11 of its decision of 24 March 2000): "Mr Walters [counsel for the company] quite frankly conceded that this argument had not occurred to him until he was able to study the judgment of the European Court in Elida Gibbs." But, as the tribunal recognised (correctly in our view) the contention which the company wished to advance under article 11C(1) of the Sixth Directive was "not so much a new point in relation to the appeal as it is constituted before us but a wholly new matter."
"(1) An appeal to a tribunal shall be brought by a notice of appeal served at the appropriate tribunal centre.
(2) A notice of appeal shall be signed by or on behalf of the appellant and shall - . . .
(c) state the date of the document containing the disputed decision . . .;
(d) . . . have attached thereto a copy of the document containing the disputed decision; and
(e) set out, or have attached thereto a document containing the grounds of the appeal, . . ."
In the present case the notice of appeal, which is dated 5 July 1995, identifies the document containing the disputed decision as a letter dated 16 June 1995 from the VAT Policy Directorate (VAD3); and sets out the grounds of appeal in these terms:
". . . that the supply of redemption goods to a customer under a trading stamp/voucher scheme is not a gift but is a supply for consideration paid by the customer on the occasion of the original purchase. VAT is not therefore due when the cost of the redemption goods exceeds £10."
The letter of 16 June 1995 contains a statement of the Commissioners' decision that there is no direct link between any uplift in the price of fuel and the supply of the redemption goods. It goes on, under paragraph 9(d):
"redemptions: Kuwait must account for output VAT on cost where cost exceeds £10. We do not see a series or succession of gifts. Kuwait are entitled to input tax in respect of the supply by Argos."
Is there a need for a reference to the Court of Justice?
". . . : if the facts have been found and the Community law issue is critical to the court's final decision, the appropriate course is ordinarily to refer the issue to the Court of Justice unless the national court can with complete confidence resolve the issue itself. In considering whether it can with complete confidence resolve the issue itself the national court must be fully mindful of the differences between national and Community legislation, of the pitfalls which face a national court venturing into what may be an unfamiliar field, of the need for uniform interpretation throughout the Community and of the great advantage enjoyed by the Court of Justice in construing Community instruments. If the national court has any real doubt, it should ordinarily refer."
But it is, we think, important to have in mind, also, the observations of the Advocate General (Mr Francis Jacobs QC) in Wiener S I GmbH v Hauptzollamt Emmerich (Case C-338/95)  CMLR 1110. A measure of self-restraint is required on the part the national courts, if the Court of Justice is not to become overwhelmed. A passage at paragraph 61 of his opinion is of particular relevance in the present context:
". . . another development which is unquestionably significant is the emergence in recent years of a body of case law developed by this Court to which national courts and tribunals can resort in resolving new questions of Community law. Experience has shown that, in particular in many technical fields, such as customs and value added tax, national courts and tribunals are able to extrapolate from the principles developed in this Court's case law. Experience has shown that that case law now provides sufficient guidance to enable national courts and tribunals – and in particular specialised courts and tribunals – to decide many cases for themselves without the need for a reference."